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Oil Prices Hold Up Against Falling U.S. Crude Oil Inventories

Canada's Oil and Gas Industry Soars to New Heights

As Canada's oil and natural gas production hit record high levels, the country is taking pains to amplify its status as a global oil and natural gas superpower. One part of this greater initiative includes an ongoing effort to transform the sector to be less reliant on U.S. markets and infrastructure through strategic expansion of its own industry at a time when the United States is taking a step back.

Canada took a major step in that direction on May first when the Trans Mountain pipeline expansion project (TMX) finally became commercially operational after 12 years and 12 years and C$34 billion (USD$25 billion). Years of insufficient pipeline infrastructure have forced Albertan oil producers to sell their oil at a discount, resulting in tens of billions of dollars of revenue loss each year. The new TMX is set to change all of that by tripling the nation's flow of crude. 

In anticipation of a boom year for Canadian oil and gas, producers are already ramping up output, and as a result Canadian oil production is expected to break records this year, reaching a high of around 5.3 million barrels per day. Not only is this a massive boon to the Canadian economy, it's also a huge step toward self-sufficiency for the Canadian energy industry that will enable the country to ease its reliance on U.S. markets. 

This expansion in oil production and crude transportation capacities comes at the same time that Canada is trying to ramp up its natural gas sector. The first phase of the LNG Canada liquified natural gas export facility, the largest private investment in Canadian history, is now reaching completion in Kitimat, British Columbia. The project expects to come fully online in 2025. 

While the LNG Canada facility is designed for the sole purpose of exporting natural gas to other countries, its operations will actually slash Canada's exports to the United States, at least in the near term. Although the United States was a net natural gas exporter last year, Washington nevertheless imported 8.0 billion cubic feet per day of natural gas in 2023. And the vast majority of that was delivered via pipeline from Canada. 

As operations at the LNG Canada terminal pick up speed, those pipelines will most likely take a hit as supplies are stretched thin for the first few years. "Western Canadian producers historically have been able to raise average production by up to 0.5 [billion cubic feet per day] year-over-year, indicating a temporary supply gap for U.S. and eastern Canadian markets at the outset of LNG Canada's full operations," Reuters recently reported. Industry insiders anticipate that satisfying the natural gas demand of LNG Canada alone will take about four years. 

While this presents a hurdle for the United States, which doesn't drill enough natural gas to satisfy its own demand despite being the biggest producer in the world, Canadian markets see the easing of their tight relationship with U.S. markets as an important step for their autonomy and status in the global marketplace. "The startup of LNG Canada opens new markets for Canadian gas other than the (U.S.) Lower 48 ... any downturn in the amount of Canadian gas exports to the U.S. could reverberate across North America later this decade," Eli Rubin, senior energy analyst at consultancy EBW Analytics Group, was quoted by Reuters.

To be sure, Canada is not trying to break its close trade relations with the United States. In fact, it's continuing to lobby for greater economic cooperation between the neighborly allies going forward. However, Canada is currently in a unique position to gain strategic economic ground on a global scale as the United States continues a pause on approvals of new licenses to export LNG, and many Canadian officials feel that it would be foolish not to capitalize on that window of opportunity. 

By Haley Zaremba for Oilprice.com 

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Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the… More